Workers Comp Policy Mistakes Occur More In These Employers

We used to have an exhaustive list of employers that listed all of the employers that had mistakes in their Workers Comp policies. After examining Workers Comp policies for over 12 years, we have found that no one type of employer has more mistakes in their policies.

The list does not mean there are errors in your policies. It does mean your company has a higher likelihood than other companies.

We have found that West Virginia employers have a higher rate of mistakes in their policies than other states. This is very like due to the switch-over from the Old State Fund to a an open insurance market. We will monitor this for the next few years. We have picked up a large number of West Virginia clients due to the changeover.

Recently, two types of employers have popped up on our radar screens for having errors in their Workers Comp policies. They are companies that:

Payroll Audit Dispute And NCCI

Is a Payroll Audit Dispute worth our time? How long do we have to dispute the payroll audit results that we just received? Should we call in NCCI to do an inspection?

We have often seen where the insurance carrier tells the employer that they have ten days to pay or dispute an audit when sending an audit billing. Most State Rating Bureaus and the NCCI allow a dispute up to 30 days after receipt of the audit results. That does not mean the receipt of the billing if a notice of audit adjustment has preceded the billing.

Calling in your State Rating Bureau or the NCCI and disputing the audit may cost your company more than it is worth. It is usually best to dispute the audit with the insurance carrier. If you call in NCCI, you will have to pay for the inspection, which can be expensive. What happens if the NCCI causes your rates to be ever higher after their inspection? You can possibly cost your company even more Workers Comp premiums. There are certain times such as these to call in an expert such as J&L to examine the premium audit.

California Reader Question

A California reader had a great question. Is California a tougher state than other states for your company to provide Workers Comp review services?

We have heard this question often over the past five years. Fortunately, we have aided employers in recovering premiums from SCIF and have been able to reduce quite a few CA companies’ Workers Comp costs. The rules in CA are somewhat different than most other states. I have noticed that quite a few of the rules from the WCIRB (Workers Compensation Insurance Rating Bureau) have been modified to be more like the NCCI. This was a good move by the WCIRB.

The main differences are the span of time that can be examined for overcharges, and that there was only one provider of Workers Comp insurance for many years. The latter made it very complicated to look elsewhere for Workers Comp insurance coverage. That has all changed with SB 899, which has finally enabled a semi-open market for Workers Comp insurance.

That being said, please look at one of my old posts on The Red Flags for Overcharges. This list applies to any state or states.

We have also heard the same question often from employers in:

Ohio

West Virginia

New York

North Dakota

Wyoming

The bottom line is to not let the states that you are operating in dictate your insurance budgets.

Oklahoma Manufacturers Association

A few days ago I had posted about the Oklahoma Manufacturers Association wanting to establish a self-insurance pool for Workers Compensation. They have done well with a health insurance pool and wanted to try to do the same with Workers Comp.

Workers Comp requires a large pool of employers to insure themselves. The Law of Large Numbers requires a huge pool of insureds. I also question that the pool should be homogeneous employers. The Law of Large Numbers is the same as the old saying about “Safety in Numbers.”

So many self insurance pools have went under that I will not list them as it would take up tens of pages. Why did these self insurance pools not survive? The Law of Large Numbers requires the risk to be spread over a very large group.

If the Oklahoma Manufacturers Association starts a self insurance or risk pool, they will be segmenting the manufacturers from all other employers in the state of Oklahoma. If all manufacturers are having problems with say, back strains and carpal tunnel, what in the group would offset these injuries?

One of the other problems is that ALL manufacturers would have to join the risk pool. Usually when a risk pool in founded, a small percentage of the possible members will join. There may be more members joining later, but usually the pool has already suffered too many losses to spread the risk, and the members see their Workers Comp premiums double the next year.

Pools will usually take in all applicants, regardless of their past claims histories and E-Mods. This initiates the process of Adverse Selection. Adverse Selection occurs when the riskiest companies sign on to a risk pool without the balance of the safer companies also coming into the risk pool.

I do hope the Oklahoma Manufacturers Association has a very successful risk pool for Workers Compensation. The odds are stacked very heavily against them.

The Most Popular Question on JL Risk Management Consultants Services

The most popular question JL Risk Management Consultants receives is how are we different than our competitors.

Before we go on to the OK analysis of the Compsource bill, I thought it was best to answer the most popular question from our blog readers – this was also blogged on 10/25/07.

Another Question from Our Workers Comp Blog readers – There are a few companies that do Workers Comp premium reviews such as J&L. Do you do anything different than your competitors?

Answer – There are a few things that separate us from our competition. The main two are:

Premium Audits/Reviews – I am a former Systems Engineer and programmer. We use homegrown software in doing our premium reviews. We are able to find more inconsistencies or errors in the premiums paid than our competitors. Our software drills down into the Workers Compensation data much further than the packaged software that is on the market as of today. As I have an actuarial/statistical, computer, and claims background, we are able to apply unique models to the data for analysis.

Reserve Audits/Reviews – I have a heavy claims background that allows us to initiate a reserve review and a premium review at the same time. No premium review company has this level of expertise in both these areas. Ask one of the premium review companies about reserve reviews and they will usually tell you that they know of someone that they can refer you to in another company or they will refer you to a sub-contractor.

We are able to analyze both areas to the fullest. We start with the premiums paid and work our way back to the E-Mod and then to the reserves on the Workers Comp files. We then analyze the reserves to make sure that the files are reserved properly. We do all of the statistical processes “in-house.”

We have also started doing quite a large number of performance file reviews for larger insureds.
I regret sounding like advertising, but it is the truth. We are not in business to be like the other companies.

Oklahoma Insurance Bill Would Change CompSource

A new Oklahoma insurance bill is dangerous to Workers Comp. Oklahoma is near and dear to my heart, as it is my home state. There are many problems with this bill that is not understood by the Oklahoma house.

This could be an insurance disaster in the making. Please see my blog response underlined below. They did not consult a Workers Comp insurance consultant before they passed the bill.

OKLAHOMA CITY – Oklahoma businesses will get better service from the state-created workers’ compensation insurer if House Bill 1959 is signed into law, the president of CompSource Oklahoma said Tuesday.

HB 1959, by Rep. Ron Peterson, R-Broken Arrow, would give CompSource the authority to provide insurance coverage for employees who work out of state for an Oklahoma-based company. The Legislature created CompSource to make sure Oklahoma businesses would always have access to workers’ compensation coverage for their employees. The agency operates as a non-profit, self-supporting insurance company for Oklahoma employers.

Current law requires CompSource to provide insurance coverage only for employees who work in Oklahoma. Oklahoma-based businesses that have employees working in surrounding states have to obtain coverage for those workers from companies in those states.

“We had an Oklahoma business that had to go to four or five mechanisms just to find coverage sometimes,” said Terry McCullar, president and CEO of CompSource. HB 1959 will simplify matters for those companies, allowing them to insure all of employees with the same company.
“We’re not going to be licensed on all those different states,” said McCullar. “We will have to enter into an agreement with a private carrier. They will actually write the business on their paper, and we will assume the risk. Will it amount to a lot of business, no. But it is certainly a customer service issue. It makes doing business in Oklahoma easier.”

HB 1959 passed easily on its own merits in the state Senate after Lt. Gov. Jari Askins voted to end a skirmish over a proposed amendment to the bill. Sen. James Williamson, R-Tulsa, had proposed an amendment to require Senate confirmation of gubernatorial appointments of judges to the Workers Compensation Court.

Askins voted in her capacity as president of the Senate to break a party-line tie vote, defeating the proposal to add Williamson’s amendment to HB 1959. Once the amendment was removed, the bill passed on a vote of 29 to 19, sending the measure to Gov. Brad Henry’s desk for his signature.

The best way to get the best services without government subsidy is to privatize the state fund through a mutual company, and allow it to operate like a real insurance company, beholden, not to political and internal interests, but to their policyholders. Comment By John Thompson.

Privatizing any insurer is always the best way to go. I have commented on that often in my blog.

However, how will Compsource inspect the out-of-state risks? Will they use NCCI? They cannot just blindly write coverage with some type of inspection. What if they have employees in CA? CA will not allow insurance out of Oklahoma. Is Compsource registered to write coverages in these states? Has anyone consulted a WC insurance consultant? What benefits will be paid – based on OK or the other state? This is going to be a complete legal mess.
Legislation by non-WC knowledgeable personnel will end up costing big bucks.

Article provided by James J Moore, AIC, MBA, ChFC, ARM. All articles are original content. Check out the full website at www.cutcompcosts.com.

Workers Comp Law of Large Numbers

This is a great article on Workers Comp risk and the Law of Large Numbers – Check back tomorrow to see why this type of Workers Comp arrangement rarely survives long term.

By Jim Stafford
NewsOK

Broad acceptance of a health insurance plan offered by the Central Oklahoma Manufacturers Association has prompted the group to explore a workers’ compensation package for the state’s manufacturers, officials said Tuesday.

The manufacturing group has hired Arthur J. Gallagher Risk Management Services of Tulsa to develop a new workers’ compensation insurance package for small and medium manufacturers, said Bob Carter, an extension agent with the Oklahoma Manufacturing Alliance. What are the savings? The proposed workers’ compensation insurance could save manufacturers 10 to 20 percent on premiums, Carter said.

Workers’ compensation insurance is a major expense to manufacturers, said Jory Gromer, president of the Central Oklahoma Manufacturers Association. Gromer is general manager of Green Bay packaging in Chickasha. “This is why we are looking at the feasibility of a plan on an association basis,” Gromer said. “In order to accomplish this, we are asking member and nonmember manufacturers across the state to provide us with certain workers’ compensation data. All data will be held in strict confidence.” The plan would be offered to manufacturers statewide, said Carter, who works closely with the association through his role with the not-for-profit Oklahoma Manufacturing Alliance.

The group’s health insurance product, which is offered in partnership with BCBS of OK, has enrolled more than 200 manufacturers throughout the state, Carter said. That covers about 12,000 employees and their family members. “Blue Cross told us the increase for COMA participants in the 2008 health plan would be zero,” Carter said. “One of the nicest things that could ever happen to this group is the fact that there was no premium increase in 2008 for any company.”

The Central Oklahoma Manufacturers’ Association claims 339 member companies from across the state. Member companies pay an annual membership fee of $50.

Oklahoma’s workers’ compensation rates are higher than neighboring states of Texas, Kansas and Arkansas, Gromer said. “Our intent with this plan is two-fold,” Gromer said. “First, we want to help local manufacturers save a substantial amount on workers’ compensation premiums. Second, we hope the state would consider using this plan, along with our health care and long-term care plans to attract out-of-state manufacturers to Oklahoma.”

Up Next – Why Employer Group Associations Insurance Plans Are Rarely Successful

Most Workers Comp Bill Review Overcharges Need To Be Examined

Workers Comp bill review can be a very important risk management technique. One of the most controversial areas in Workers Comp from what we have observed is when the carrier or TPA charges an employer to do their Workers Comp bill review.

We have seen overcharging for things such as:

Price per bill or per line

PPO Network Access Fee

% of Savings – this one is abused the most

Physicians Discount Fee

Hospital Bill Negotiation Fee

Many others using different and catchy names

This is one area that if you feel that you do not understand, it is best to call in an expert. We discovered in 1998 a bill review and PPO company that was overcharging a public employer $680,000 per year in just bill review fees. The public employer signed off on the review contract, so there was no $ to be recovered.

There are now “boutique” PPO and bill review companies that are independent of insurance carriers and TPA’s. They are really catching on in California with their recent Workers Comp law changes. These boutique PPO companies work directly with the employers, usually Self Insureds or Large Deductible programs.

These workers comp bill review fees may be billed off-claim, which makes them very hard to track.

Workers Comp Cost Savings = Employer Control

How does the Workers Comp cost savings comes from employer control ? I have covered the ways that almost any employer can apply some of the techniques used by fully self insured employers to control Workers Comp costs. We started with what the very small employers can do up to very large employers.

There is one area that I intentionally left out until now. Somewhere in the mix between small deductibles and fully self insureds, captive insurance arrangements may be applicable. I recently had a client ask if they could have a captive when they were actually large enough to be fully self insured. The marketer for the captive seemed to have them convinced that a captive was superior to being fully self insured. I could not agree, unless there was some arrangement about captives that I do not understand.

I have posted about captives in the past. The definition of a captive is:

Captive insurance companies are limited purpose insurance companies established with the specific objective of financing risks emanating from their parent group or groups. They sometimes also insure risks of the parent company’s customers. A captive is a risk management technique where a large corporation can finance losses by making payments to a wholly owned subsidiary called a captive insurer who then pays the losses.

If the captive only insures its single parent corporation and/or subsidiaries owned by the parent it is called a pure captive. Captives are located in many places offshore from the United States, including Bermuda, Cayman Islands, Vermont, Guernsey, Luxembourg, Barbados, and the British Virgin Islands.

There are many advantages to captives. One of the areas that we have covered over the last few posts is control. Some of the control is turned over to a captive manager and the claims are usually handled by a TPA. One of the concerns that we have heard from captive insureds is the inferior claims handling by the assigned TPA. The other concern we have heard is when the fronting company or captive manager goes out of business. Who handles what then?

Captives are still very new to the Workers Compensation industry. Therefore, we cannot recommend the use of or the avoidance of a captive.

Cutting Workers Comp Costs – Self Insured Misnomer

Self Insured with a TPA

Cutting Workers Comp Costs can be easily misunderstood in certain areas by almost everyone. Over the past fifteen years we have analyzed many Self Insureds with a TPA that is paid on a flat fee basis.

The Self Insureds have told us that they are out of the Workers Compensation system as they are paying fee out-of-pocket and are only paying for reinsurance and a TPA fee. Nothing could be further from the truth.

TPA’s are spending $ directly from your insurance budget. A really bad claims year cannot be reduced by the E-Mod system as with regular insureds. The claims have to actually be monitored MORE closely than with a regular Workers Comp insurance arrangement.

The term LDF (Loss Development Factor) actually becomes the replacement for the Workers Compensation E-Mod system. As I have pointed out in the last three articles, CONTROL is the most important factor in reducing Workers Comp costs. How can a Self Insured with a TPA reduce their insurance budget by keeping control of the claims? The easiest way is to bring the claims fully in-house, thereby eliminating the TPA. This is not a simple task, but it will pay off a large amount of $ in the long run. With the claims department as part of your company, controlling costs are much easier than hiring a TPA, and control of the claims will increase as there are no outside parties involved in the Workers Compensation claims process.

All overhead expenses, salaries, claims processing systems, and other costs must be compared to the TPA costs to see if this is a worthwhile venture. One of the minimum things to consider is if there are enough claims to make a claims load for at least one adjuster.

Workers Comp Like a Fully Self-Insured Part III

Are you fully self-insured in a large deductible program? Let us look at the mechanics of having a deductible.

Large Deductible Programs
We have received many emails and calls from employers with Large Deductible programs. The number of clients we have with Large Deductible programs has grown phenomenally over the past few years. Most of them want to become fully self-insured which is a great option. That will be covered in the next post.

Large Deductible programs require/allow an employer to set a deductible of $250,000 or $500,000 with an aggregate number of say $5,000,000. If a single claim goes over the single claim limit or all the claims exceed the total aggregate, then regular Workers Comp insurance would kick in to pay the claims.

The employer pays their claims under the limits out-of-pocket and their claims are handled by a TPA. This is very close to the goal of being fully self insured. The companies must be large enough for a carrier to set up this type of agreement.

A large amount of premiums dollars can be saved by paying claims out-of-pocket. However, there is one surprise that occurs with Large Deductible programs. We are contacted often when this occurs. EVEN THOUGH YOU ARE IN A LARGE DEDUCTIBLE PROGRAM, ALL CLAIMS ARE STILL REPORTED TO THE NCCI OR STATE RATING BUREAU. PLEASE DO NOT THINK YOUR E-MOD IS REDUCED BECAUSE YOU ARE PAYING THE CLAIMS DIRECTLY OUT OF YOUR BUDGET.

I have a NCCI Experience Rating Report for a large trucker right in front of me now. They were told by their agent that the E-Mod can be reduced by being a Large Deductible. That is not true and can heavily affect how the Large Deductible Program is written. This may also be an impediment when an employer tries to become fully self-insured.

Workers Comp Insurance Pools Like A Fully Self-Insured

Ways to Save on Workers Comp Premiums – Acting Like a Fully Self-Insured

Workers Comp Insurance Pools

Insurance Pools were a great way to save on premiums in the past. Homogeneous employers were grouped together into risk pools and each member of the pool paid their share of the Workers Comp total costs. The Insurance Pool Administrator which operated like a hybrid TPA would adjust the claims, handle all filings, and handle all administrative duties for a fee.

These are not as popular as they were in the 1990’s due to the law of large numbers. Risk pools such as trucking, construction, food service etc. did not have enough members to spread the risk. One or two members having a very poor Experience Rating would over-burden the rest of the pool. The pools were often not large enough to offset the employers with many or a few very serious claims. Insurance Pools are still in existence.

If you are considering joining an insurance pool, make sure you have an expert or a team of experts analyze the pool before signing on. We received many calls and emails on trucking pools where the employer had very few claims and their Workers Comp premiumdoubled.

There are now very many hybrid insurance pools that may save an employer on premiums. Once again, please make sure that the pool is healthy before turning your Workers Comp program over to a pool administrator.

Workers Comp Small Companies

Small Companies Can Operate Like A Self-Insured (in a way) – From the last post we are going to start with the smallest companies and work our way up to the largest. The theme is saving money by operating like a Workers Comp fully self insured.

No Coverage – this is a very controversial topic. I am not saying to avoid paying Workers Comp premiums. In certain states, there is a minimum of employees that are required for the State to require that you have Workers Compensation insurance. Some states will not require a company to have Workers Comp coverage if they have less than three employees. Make sure to email us or call your State’s Department of Insurance before making this decision.

Ghost Policies – this is another controversial way to cover a small company’s Workers Comp burden. Companies can purchase policies that provide nothing other than a certificate of insurance for Workers Comp coverage. I have come across these with trucking companies. Before buying one of these policies, make sure that all the options are explained to you.

Small Deductible – As companies grow, this may be a viable option. The employer can pay all claims out-of-pocket to a certain amount, say $300. This cuts the small claims down significantly. There are many options on this type of coverage, such as all claims being filed with the insurance carrier, but the first $300 being billed back to the employer. One of the complications of doing this is when the employer does not report a serious claim timely. There are many ways to use the small deductible programs.

The first three options above are for the smaller companies to retain some of their risk like a larger company that is fully self insured. When an employer retains some of the risk, they can control their Workers’ Comp costs at least partially.

Cutting Workers Comp Costs Like A Self Insured

Controlling Workers Comp Costs is very important to an employer’s budget. In one word – a word which has already been used in the last sentence – CONTROL. The more control that your company has over the way that your Workers Compensation claims are handled will ALWAYS result in a reduction in what you pay in Workers Comp premiums.

The ultimate goal of every employer should be to handle their own claims in-house with their own on-staff adjusters. In-house claims handling is usually reserved for only the largest of insureds as a company must prove to the State Insurance Commissioner that they are large enough and stable enough to be a Self-Insured.

So you are sitting there reading this and saying – “I am too small a company to be Self-Insured.” That may be true, but there are techniques that are employed by Self-Insureds that a company can use in your everyday operations to cut Workers Comp Costs.

For this and the next few posts, we will cover some of those techniques. We will go from the techniques that larger companies can use down to the companies that pay the minimum Workers Compensation premiums.

The list of techniques by company size is as follows:

Self-insured with a TPA handling your claims

Captive

Super Large Deductible

Large Deductible

Insurance Pool

Small Deductible

Ghost Policies

Flying with No Coverage – not the illegal kind

Remember that the bottom line is to make your insurance department like a in-house fully self-insured. As this may go a little long, I will cover two per day. Keep reading each day as there will be something in here for a company of any size in any state.

West Virginia Conference – More Thoughts

The West Virginia Conference article from 4/08/08 (continued.)

Outside of the Mandolidis decision, I thought that the insurance carriers were very positive about writing Workers Comp coverage in West Virginia. I was interviewed by the Charleston Daily Mail, which is the local newspaper for Charleston, WV. I commented in the interview that I wished that Insurance Commissioner Cline would have been able to make it, but I was informed that she was in China for the National Association of Insurance Commissioners (NAIC).

I wish to thank the West Virginians for their hospitality. I enjoyed working with quite a few of the employers and look forward to the open market that will exist post 7/1.

The NCCI has done a commendable job in setting rates. How could rates have been set without any prior data? The NCCI used seven similar states to come up with rates, which is about as good as it gets.

We shall soon see how the open market functions. Well, it is not quite an open a market as Brickstreet, the monopolistic carrier that will be handling all the governmental employees’ Workers Comp for a few years into the future.

The Bottom Line – all this can only come out positive for the citizens and business of West Virginia.

The Mandolodis Decision Part II

The Mandolodis decision was discussed heavily at West Virginia Workers Comp Conference. On 04/08/08 I attended the West Virginia Workers Comp Conference. The Conference is a prelude to the open market for Workers Comp in WV as of 7/1/08.

The Mandolodis decision discussion became very contentious. The one area that concerned me, as it did most of the insurers, was the Mandolodis decision. Please see my last post for a breakdown of what the suit entails for Workers Comp insurers.

While the NCCI said that Mandolodis would not affect any employers’ E-Mod, there was a great concern that there would be coverage under Part B of a Workers Comp policy. Part B of a Workers Compensation policy is known as Employers Liability. It was designed as a catch-all in case a suit was brought against an employer that would be considered a liability claim.

Most state statutes and Supreme Court cases have ruled that there is a sole remedy for Workers Comp and that employees could not choose to sue their employer under a liability claim. Such suits would wreck the Workers Comp system.

Mandolodis seems to have punctured the employer’s veil of Workers Comp as a sole remedy. That leaves the insurers and employers of WV in an interesting situation. One of the solutions that I had heard at the conference was to have a stop-gap policy that addressed the Mandolodis claims. This would seem to work on the surface, but Mandolodis claims involve an INTENTIONAL act by the employer. Insurance never has and never will cover an intentional act. This may complicate the situation even further.

The NCCI (National Council on Compensation Insurance) is the final decision maker on whether those claims affect the E-Mod. They gave their assurance that it would not affect an employer’s Workers Comp E-Mod. My understanding is that Brickstreet (the state-mandated temporary monopolistic Workers Comp carrier) is offering a Mandolodis coverage for a certain % on top of the original policy.

I am sure there is going to be some effect from the Mandolodis decision in WV. We may have to wait until 2010 to see what the final effect was from this conundrum.

Workers Comp Conference Mandolodis Decision Part I

The WV Workers Comp conference 04/08/08 covered this decision thoroughly. Instead of covering most of the major topics, I thought I would cover the Mandolodis decision that has so many of the insurance carriers very concerned about writing new Workers Compensation policies beginning 07/01/08.

In 1978, the West Virginia Supreme Court of Appeals issued a ruling in Mandolidis vs. Elkins Industries Inc. that meant an employee can sue his employer for “deliberate intent” without having to blame a specific person for the injury.

Following the Mandolidis decision, the state began a new insurance program, called the Employers Excess Liability Fund, which allows companies to buy additional coverage to protect them from the added potential liability stemming from the Mandolidis decision. The Legislature turned the opinion into law, which was followed by a “flurry of cases in 1992 and 1993.” The statute established a strict, five-part test a plaintiff would have to meet to file a legitimate deliberate intent lawsuit. But the Supreme Court, in its interpretation of the five-part test, watered down those standards significantly.

A 2000 Supreme Court opinion in Roberts vs. Consolidated Coal Co. has made deliberate intent cases even more problematic. The workers’ compensation statute removes certain defense strategies a company can use in return for legal protection from lawsuits. The court ruled in Roberts that because deliberate intent lawsuits relate to that statute, the defense limitations apply.

Thus, employers cannot present evidence that criticizes the injured worker. For example, if a worker sues his employer because he believes an injury was the result of faulty equipment, the employer cannot argue the worker used the equipment incorrectly. The employer would be limited to proving that the equipment functioned properly. Mandolidis litigation is a problem because it seems that every serious injury results in a deliberate intent lawsuit being filed.

Consent to Consented Premiums

Consented premium allows the insurance carrier to deviate from their state filings for a certain Workers Comp Class Code. This is a popular way to write policies in the state of Florida. A carrier supplied factor is added to the filed rates. The “consent” is given by the signature of the insured.

This usually happens when a company is very hard to classify or the classification code that is closest in nature to the company does not account for all of the risks inherent to the specific employer. These consented premiums must be pre-approved by the department of insurance where coverage is sought.

We had reviewed a recent policy where the consented premium was 280% more than the filed classification code. The insured employer had signed off on the consented premium.

The advantages to Consented Premiums are:

Allows a hard-to-cover employer to have Workers Comp insurance coverage

Must be approved by the Department of Insurance

The disadvantages are:

A much higher Workers Comp premium cost.

If any questions come up later about the policy or audit, it is very difficult to dispute as the premiums and classification codes were consented to by the employer.

There may have been a classification code that more closely fit the employer which could have avoided a heavy surcharge.

The E-Mods are being calculated from a less-risky classification, even though there is a higher-risk element added to the policy.

Update – I received a notice from my home insurer that I needed to sign a consented premium form as what they are going to charge me was above the recommended amount by the North Carolina Insurance Commissioner. If I did not sign it, I was going to be canceled in 30 days.

Blog Producer Software

To our blog readers – our blog producer software had a slight error which has now been fixed. We will soon have a place for our readers to sign up to have our Workers Comp daily blog emailed to them.

We are trying to upgrade everything as much as possible so that you can read our old, present and future articles more easily. Please feel free to sign up for our newsletter or search for any topic by using the top right box on any page. We use Google as our search engine for speed and reliability.

I have been traveling quite heavily over the last two weeks. We will have a blog on the West Virginia Workers Comp Forum next week. It should be interesting.

As always, thanks for reading these articles. Let me know at [email protected] if you have any suggestions for articles. Any suggestions concerning Workers Comp risk management will be much appreciated.

Workers Compensation Reserves – The Ever-Silent Budget Killer

Workers Compensation reserves can be critical when trying to lower your company’s premiums.

The silent budget killer for most company’s Workers comp program revolves around the claim reserves. I have posted very often about the process for calculating Workers Comp premiums. The one area that I could never cover enough is Workers Comp reserving. The reserves are the engine for all calculations that have to do with calculating your Experience Modification Factor, or E-mod.

What makes the reserves on a file so unique? In all the process of how your Workers Comp premiums are charged, the Reserves are the only unregulated numbers in the equation. The reserves on a Workers Comp file are left up completely to the claims department. The adjuster can set the file reserves at any level they wish. The only regulation the file has is the supervisory staff of the claims department.

How are reserves calculated? It is usually some form of an educated guess by the claims adjuster. You have very little control over the Workers Comp reserve figures.

Questioning the loss reserves on a file should be a quarterly, if not monthly task for you or someone in your organization. A well-placed email to the claims adjuster on the file. Do not just email the adjuster and say the reserves are excessive. Why are they excessive?

How do you take control of your reserves? A Workers Comp Loss Run review is a great way to make sure you are not overpaying on your Workers Comp premiums. One of my prior posts covers the review in detail.

If you feel that this is a very complicated process, you are very correct. Do not hesitate to call in a claims expert such as our company to help you make sure you are not overpaying.

Total Incurred – The Basic Definition

The Total Incurred are the funds that have already been paid out + the Reserves on the file.

The E-Mod is calculated using Total Incurred as one of the main items. The Paid part can rarely be adjusted. The Reserves, however, can be negotiated.

Update – This is an older article. Leakage audits on concerning the accuracy of the file payments can now be analyzed. We have partnered with two different firms that can provide leakage audit services.

The two parts of the Total Incurred are

Indemnity Payments/Reserves

Medical Payments/Reserves

If you look at your NCCI or Rating Bureau Sheets, you will only see one loss figure. The Total Incurred is the total of the above two bullets.

Insurance carriers and Third Party Administrators sometimes have different labels on the Paid, Reserve, and Total columns. They can be confusing. If you have any questions on your loss runs, you should call your insurance carrier or TPA and ask any questions about your loss run.

There is no standard loss run. No state insurance department or rating bureau requires a certain form for the losses to be reported to the employer.

One of the most important things to remember is that on the loss runs the total incurred is the sum of the Indemnity, Medical, and Expense figures. However, you have to subtract out the expense figure to match it to the Rating Bureau Worksheets.

I wanted to start with the Total Incurred, as I wanted to talk more about the Reserves part of the figure in the next post.

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About Me

James J Moore
Raleigh, NC, United States

James founded a Workers' Compensation consulting firm, J&L Risk Mgmt Consultants, Inc. in 1996. J&L's mission is to reduce our clients’ Workers Compensation premiums by using time-tested techniques. J&L’s claims, premium, reserve and Experience Mod reviews have saved employers over $9.8 million in earned premiums over the last three years. J&L has saved numerous companies from bankruptcy proceedings as a result of insurance overpayments.

James has over 27 years of experience in insurance claims, audit, and underwriting, specializing in Workers' Compensation. He has supervised, and managed the administration of Workers’ Compensation claims, and underwriting in over 45 states. His professional experience includes being the Director of Risk Management for the North Carolina School Boards Association. He created a very successful Workers’ Compensation Injury Rehabilitation Unit for school personnel.

James's educational background, which centered on computer technology, culminated in earning a Masters of Business Administration (MBA); an Associate in Claims designation (AIC); and an Associate in Risk Management designation (ARM). He is a Chartered Financial Consultant (ChFC) and a licensed financial advisor. The NC Department of Insurance has certified him as an insurance instructor. He also possesses a Bachelors’ Degree in Actuarial Science.

LexisNexis has twice recognized his blog as one of the Top 25 Blogs on Workers’ Compensation. J&L has been listed in AM Best’s Preferred Providers Directory for Insurance Experts – Workers Compensation for over eight years. He recently won the prestigious Baucom Shine Lifetime Achievement Award for his volunteer contributions to the area of risk management and safety. James was recently named as an instructor for the prestigious Insurance Academy.

James is on the Board of Directors and Treasurer of the North Carolina Mid-State Safety Council. He has published two manuals on Workers’ Compensation and three different claims processing manuals. He has also written and has been quoted in numerous articles on reducing Workers’ Compensation costs for public and private employers. James publishes a weekly newsletter with 7,000 readers.

He currently possess press credentials and am invited to various national Workers Compensation conferences as a reporter.